Blog Posts

Warren Buffet once said, “Cash combined with courage in a time of crisis is priceless.” Will those with the “cash”—the institutional investors who own an estimated $70 trillion in capital—have the courage to respond?

Despite difficult negotiations in Lima, discussions signaled the positive outlook among development banks for expanding climate finance in Latin America and the Caribbean.

With increasing low-carbon investments, pledges to the Green Climate Fund, and ambitious renewable energy and efficiency targets demonstrate robust political and financial commitments, building momentum for a strong global response to climate change.

Developing countries will need about $531 billion of additional investments in clean energy technologies every year in order to limit global temperature rise to 2°C above pre-industrial levels, thus preventing climate change’s worst impacts. To attract investments on the scale required, developing country governments, with support from developed countries, must undertake “readiness” activities that will encourage public and private sector investors to put their money into climate-friendly projects.

The development of Indonesia’s geothermal energy sector—and the starts and stops along the way—provides an interesting case study on how to create readiness for low-carbon energy. By addressing barriers such as pricing distortions and resource-exploration risks, the country has begun to create a favorable climate for geothermal investment.

The History of Geothermal Power in Indonesia

Indonesia holds the world’s largest source of geothermal power, with an estimated potential of 27 GW. However, less than 5 percent of this potential has been developed to date. Indonesia began to explore its geothermal resource in the 1970s, with support from a number of developed country governments. The country made some progress in advancing geothermal development by the 1990s. However, development stalled during the Asian financial crisis in 1997-98 and was slow to recover.

In the early 2000s, a number of barriers limited investment in the sector, including a policy and regulatory framework that favored conventional, coal-fired energy over geothermal. Plus, the high cost and risk associated with geothermal exploration deterred potential investors and made it difficult to access financing from banks.

The Indonesian government took a number of steps to try to advance geothermal development and received support from a wide range of international partners, including multilateral development banks and developed country governments. In 2003, it passed a law to promote private sector investment in geothermal, establishing a target of 6,000MW installed capacity by 2020.

The Doha negotiations that just concluded earlier this month have again drawn attention to the urgent need for climate adaptation and emissions reductions. Government representatives, civil society stakeholders, development aid organizations, and corporates agree that the world must make big strides—soon—if we are to have any hope of keeping global average temperatures to 2 degrees Celsius above pre-industrial levels.

One problem, though, is how to generate enough finance to fund these activities. A new WRI working paper aims to address this challenge by examining the role multilateral agencies can play in mobilizing private sector finance for climate change adaptation and mitigation.

Leveraging the Private Sector to Bridge the Climate Finance Gap

Developing countries—those most vulnerable to climate change’s impacts—will need $300 billion annually by 2020 and $500 billion annually by 2050 for mitigation activities alone. The newly established Green Climate Fund (GCF), meant to channel $100 billion annually into climate-relevant investments starting in 2020, is a significant first step, but does not fill the gap of what’s needed.

The public sector cannot tackle this challenge alone, and indeed, the GCF already envisions funding from a mix of public and private sources. The key, then, is to mobilize the private sector to create new investment opportunities and new markets.

Publications

This working paper seeks to elucidate the current estimates for transport infrastructure requirements, looking at a series of reports that consider projected global infrastructure needs in the coming few decades, and provide or quote a cost estimate for these needs.

Focus on Multilateral Agencies

These documents explain the methodology WRI employed for its research and provide a listing of the projects considered in its working paper, Public Financing Instruments to Leverage Private Capital for Climate-Relevant Investment: Focus on Multilateral Agencies. The methodology may serve as a...

This document maps the types of financial instruments used by various development financial institutions, export credit agencies, and climate funds to support their operations. It can serve as a useful reference for public sector decision-makers evaluating the broad toolkit of options available...

Focus on Multilateral Agencies

This working paper is part of WRI’s Climate Finance Series, which tackles a broad range of issues relevant to public donors, intermediaries, and recipients of climate finance. A subset of this series, including this working paper, examines how public funds can leverage private sector investment...

This document provides a glossary of financing instruments and the mechanism of these instruments. These definitions may serve as a useful reference for public sector decision-makers evaluating the broad toolkit
of options available to support private sector climate change mitigation...

These tables provide examples of donor government, development bank, research organization, and private sector efforts that examine how to use public climate finance to leverage private capital for climate change mitigation projects in developing countries. These tables are intended to...

This document provides an array of relevant papers, publications, and resources that address: 1) Using Public Resources to Leverage Private Sector Participation; 2) Types of Public Financing Instruments and Mechanisms; and 3) Other Contextual Publications. These reading resources represent the...

A Primer on Public Climate Financing Instruments Used to Leverage Private Capital

Targeting public finance to leverage private sector capital can help meet the several hundred billion dollars of annual low-carbon investment required in developing countries. This working paper serves as a primer, demonstrating how the public sector can employ different types of public...